April 19, 2022 Kickstarting Digital Transformation

A well-run supply chain requires highly accurate data, not assumptions and guesswork.

Jonathan Laverentz, Head of Digital Innovation, Tradeshift

A well-run supply chain requires highly accurate data, not assumptions and guesswork, so let’s put a damaging rumor to bed. The world did not just flip a switch and “go crazy” in early 2020 when lockdowns led to clogged ports, distribution slow-downs, widespread shortages, and panic-buying (My neighbor still has a garage full of toilet paper). If you take the time to scrutinize its origins, the seeds of this madness were sown many years ago when the manufacturing industry began its headlong pursuit of hyper-efficient “just in time” procurement, and B2C eCommerce started its relentless march towards zero.

For many observers and analysts, pre-COVID supply chains represented the best of human organizational ingenuity; they shrank the world and cut costs to the bone. But there was one problem: they were willing to sacrifice resilience for efficiency, and speed over process, making them inherently vulnerable to what one former British prime minister simply described as “Events.”

So, rather than ask “what’s next?”, manufacturers should be grateful that – despite the unfortunate circumstance – life has given them the nudge they need to fix their broken supply chain models and correct several decades-worth of baked-in, systemic, and strategic errors – all of which were predicated on the “good times” never coming to an end.

In our Age of Uncertainty, resilience and agility will determine which manufacturers wither, survive, or flourish – not just in the next few months as we clean up after the current disruption, but in the century to come. Here are three steps that every manufacturer should take to rebuild a robust supply chain that is resilient enough to weather whatever storm the future throws at them:

1: Get Future Prepared

Covid arrived in the middle of manufacturing’s big digital transformation moment. According to a recent study by EY, 64% of supply chain executives said that digital transformation would accelerate due to the pandemic, and the plunging cost of robotics technologies is driving adoption even further.

The pandemic exposed the vulnerability of long-standing procurement models, where businesses had no backup in the event of a broken link in the supply chain. Building resilience back into the supply chain means diversifying and expanding your relationships – but it also demands that these relationships are better, stronger, and more agile.

Manufacturers need solid digital ties with their suppliers where all parties are clear on expectations and have access to real-time data regarding materials, shipping, and payment. And not just your tier one suppliers, but their suppliers…and so on, all the way back to the source. Data-driven communication is the keystone of next-generation supply chains. Smart utilization allows operatives to identify potential anomalies and problems before they bring the whole supply chain to a shuddering halt, and collaborate more closely with their network of suppliers to find solutions to any roadblocks.

Enhanced transparency and connectivity also have crucial benefits in the other direction – to the customer – for example, by informing them about potential delays in a timely manner, or giving them reassurance that the goods they are purchasing meet certain environmental standards. Digitalization doesn’t make manufacturers immune to disruption, but it does allow proactive communication. Ultimately it enables them to ride the wave and come out of the chaos with even stronger relationships. 

2: Get the tools to get it done

There is no shortage of tools and platforms that promise to bring a digital revolution to your supply chain operations. And digitalization is only effective when it is applied to the right task. Manufacturers must never lose sight of the critical imperatives of agility and resilience — and choose the tools that can achieve them. Successful supply chain transformations rest on three key functionalities.

• Digital networking and communication tools enable manufacturers to connect with other suppliers and buyers. A robust digital platform consolidates your communication channels and enables you to store and reference information more accurately.
• Utilize AI and rules-based automation for time-consuming and tedious jobs, such as matching POs to invoices. These tools should be fully customizable to your needs – including how comfortable you are with entrusting tasks to machines. Whether you want to start slowly with a little light automation of low-risk processes or go full steam ahead (or anywhere in between), automation must enable your business to delegate the specific tasks that will bring real value to the organization so you can concentrate on critical business outcomes.
• Embrace and implement early payment plans. One of the biggest challenges that all businesses face is securing payment for their goods and services on time. Manufacturers should choose a digital platform that can support early payment strategies while also rewarding buyers for paying faster.

3: Build a supplier community

Historically, the term “supply chain” has conjured images of solidity and reliability: a series of unbreakable links working together and crisscrossing the world. After recent international crises exposed their fragility, we’re now more likely to think of the chains that bind – or worse yet, broken links.

In hindsight, we can see that the legacy procurement model of one-to-one relationships was selfish. We don’t organize our relationships like that in other areas of our personal or professional lives. We’re a social species geared towards collaboration and partnerships, networking, and communities. When digitalization came along, we used it to transform and supercharge these relationships, whether building business networks on LinkedIn, growing our social sphere on Facebook, or joining the global conversation on Twitter.

For whatever reason, the 21st century came late to the supply chain. Nonetheless, manufacturers must not allow recent crises to go to waste: the network principle must be their new north star, the goal to which all their digital transformation efforts are geared. Creating a true community of suppliers, where each can communicate, negotiate, and collaborate, is what will genuinely transform supply chains, bringing the resilience, choice, and agility that has been lacking so long.

Wrapping Up

It’s time to acknowledge that our supply chains are just scratching the surface of their true sustainability potential. Only when all parties involved are willing to collaborate, digitalize, and utilize data-driven decision-making to automate processes, will supply chains begin to reach their full potential.

One of the legacies of the pandemic may well be the retirement of the term “supply chain.” Slowly, hesitantly, but inexorably, trade moves from chains to networks, from one-to-one relationships to global communities. While events will continue to catch us by surprise, the trading networks of the future will behave like spiders’ webs: flexing and stretching in the storm yet remaining resolutely unbroken.

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